Local banks handling crunch better than national chains

More banks are tightening requirements for unsecured loans and credit cards, but local community banks that issue personal loans and credit cards say they’ve largely avoided the crunch.

Nate Legue

More banks are tightening requirements for unsecured loans and credit cards, but local community banks that issue personal loans and credit cards say they’ve largely avoided the crunch.

Banks across the country are upping credit score requirements, charging greater interest and lowering limits on credit cards in the face of dwindling liquidity, according to the Federal Reserve Board.

In an April survey of senior loan officers, the board found that 32.4 percent were tightening their credit standards for issuing plastic, up from 9.7 percent who said the same thing in January. An even greater share — 44.4 percent — said they were making standards more stringent for other consumer loans.

“A lot of the bigger banks are going with a score-driven decision-making process, so empirical scores are marking the dividing line between the yeses and nos,” said Pat Peterson, senior vice president at Alpine Bank. “For the local angle on personal loans and particularly on secured loans, I do think there’s been a tightening of credit.”

But local banks have greater latitude in approving credit, Peterson added. Banks that use a systems-based process for approving loans, namely relying heavily on credit score, may be tighter, but smaller banks that make judgment calls are still issuing credit on a case-by-case basis.

“We do not live and die by the credit score,” Peterson said. “I’ve denied people with a 750 credit score because they have a little too much credit card debt.”

Still, Alpine Bank looks a little closer at its applicants before opening the cash drawer. Home equity lines of credit are no longer offered for up to 100 percent of home value. Like many small banks, Alpine farms out its credit card applications and management to a third party that establishes approval criteria.

For the most part, small banks have avoided the credit crisis squeezing national lenders because many do not sell their mortgages and other loans to third parties — a practice that diminished the importance of the borrowers’ ability to pay back the loan. Instead, community banks underwrote and retained loans themselves, so whether or not a borrower can pay it back was a central consideration.

“We maintain the same credit posture as we did before,” said J.D. Miller, director of marketing at Stillman Bank. “Community banks, they’re more directly involved with their customers. First and foremost for us is looking out for our customers’ best interest. We don’t want to put them in an unfair financial position.”

Nate Legue can be reached at (815) 987-1346 or nlegue@rrstar.com.

Facts about credit cards
More than half of families don’t have a credit card at all or pay off their balances every month.

There are 663 million bank-issued credit cards in the U.S. and an additional 555 million issued by stores and oil companies.

California residents hold the greatest amount of credit card debt: $100.1 billion in 2005. The state with the least amount is North Dakota, with $1.1 billion. Illinoisans hold $36 billion.

Average U.S. credit card debt

Source: U.S. Federal Reserve Board, CardTrak.com

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